Q&A Electric Cars: Reimbursement of employee expenses and reclaiming VAT

Is there an AER for EV’s?

Yes, the current rate, called the Advisory Electricity Rate (AER), stands at 7p per mile for charging at public charge points and is published alongside AFRs for petrol, diesel and LPG cars, which are based on engine size. It is reviewed quarterly. Most analyses in industry report that this is still inadequate.

Plug-in hybrid and hybrid cars will continue to be treated as either petrol or diesel models for mileage reimbursement purposes.

Can the company recover the (currently 5%) VAT on employees’ electricity expenses when charging a vehicle used for business at home?

HMRC has stated ‘You cannot recover the VAT. This is because the supply is made to the employee and not the business.’

• It has however been pointed out that this stance is at odds with HMRC internal manual VIT13400 which specifies when input VAT can be reclaimed by the business on supplies made to employees. 
• Examples of supplies which are to be regarded as made to the employer (provided the employer meets the full cost) even when it may look as if the employee has received the supply include road fuel and ‘other motoring expenses’.
• Furthermore the guidance states:
• “You should decide whether the supply is legitimately paid for by the employer for the purposes of the business. If it clearly is, then input tax should be recovered. This is in keeping with the intent of the legislation.”
• Since this advice, HMRC has announced that they were reviewing the VAT position where an employee is reimbursed by the employer for the actual cost of home electricity used to charge a car.
• Some initial details of this change in position were set out in Section 8 of Motoring expenses (VAT Notice 700/64). See below:

https://www.gov.uk/guidance/vat-on-motoring-expenses-notice-70064

 

How to account for VAT on vehicles and fuel you use for your business

Who can reclaim input tax?

VAT incurred by businesses when charging electric vehicles can be recovered on the business use of those vehicles. This applies where the vehicles are charged either:

• at work
• at a public charging premises

You can also recover the VAT for charging your electric vehicle for business purposes at home, if you’re a:

• sole proprietor
• partner in a partnership business

You should work out how much of the cost of charging your electric vehicle is for business and private use by keeping mileage records. The normal input tax rules then apply.

Employees charging an electric vehicle which is used for business at a public charging point

If an employee charges an electric vehicle (whether this is a company vehicle or not) at a public charging point, the supply of electricity is made to the company or employer. They can recover the VAT on the cost of charging the electric vehicle, subject to the normal input tax rules.

The employer must keep detailed mileage records to work out how much of the charging cost is used for business and private purposes where applicable.

Employees charging an electric vehicle which is used for business at home

Where an employee charges an electric vehicle (whether this is a company vehicle or not) at home, the overall supply of electricity is made to the employee and not the employer.

The employer is not entitled to recover the VAT on the cost of charging the electric vehicle.

Our HMRC Policy Review

Electricity paid for by employees

We are considering the situation where an employee is reimbursed by the employer for the actual cost of electricity used in charging an electric vehicle for business purposes.

This is to determine what evidence can be practicably provided, to allow the employer to claim the related VAT, subject to the normal input tax rules.

Simplification measures

We are also considering other simplification measures that may reduce administrative burdens in terms of accounting for VAT on private use.

Our Comments

• The statement in 8.4 is essentially recognising that 8.3 is not the correct stance to take and new guidance is necessary
• 8.4.1 suggests that VAT is deemed recoverable and it will be just a question of the evidence required to link the cost of actual charging to the mileage driven for business.
• 8.4.2 informs us that there is also thought being given to the correct vat reporting where an employer pays for all electricity for charging a car (i.e. both for business and private mileage) and wishes to recover all the input VAT to minimise the administrative burden.  The current position is that the employer should be restricting the input VAT on their electricity cost by reference to the proportion of mileage that is business.
• The obvious simplification may therefore be in the form of a VAT fuel scale charge equivalent for Electric Cars.
• The review is ongoing but no date has been published for when further guidance will be issued

In the meantime, clause 8.4.1 does appear to state an implied acceptance that VAT on home charging electric cars would be recoverable (restricted to business mileage).  Evidence practicably provided would normally be a combination of mileage records and evidence of VAT charged at home